Bank of America has been sued in Federal Court by the Department of Justice for business practices that occurred in Countrywide. Countrywide was purchased in 2008 by Bank of America shortly before the housing bubble burst; prior to their purchase Countrywide was the largest mortgage provider in the US.
In this civil suit, the federal prosecutors are pursuing at least $1 billion in penalties from the bank as compensation for behavior that forced taxpayers to guarantee billions in bad loans under TARP.
The charges in the complaint circulate around a practice at Countrywide dubbed “Hustle.” The Hustle’s motto was “loans move forward, never backward.” The culture and method encouraged mortgage executives to remove the checks required under federal regulation to protect against fraudulent loans. The hustle program began in 2007 when Countrywide abandoned its lending standards.
Eventually this led to a defect rate of over 40%, nine times the industry rate. When the practice and results were acknowledged publicly, Countrywide would award bonuses to staff for rebutting the existence of the issue.
Federal prosecutor Preet Bharara is lead counsel in the case and filed a complaint because “the fraudulent conduct alleged in today’s complaint was spectacularly brazen in scope…Countrywide and Bank of America made disastrously bad loans and stuck taxpayers with the bill.”
The public should take some solace in the suit, as many claim that insufficient criminal actions have been filed since the financial crisis. Even this case does not aim at the individuals responsible for the practices, but seeks damages from the entity itself.
Last month Bank of America struck a $2.4 billion deal to settle a class-action suit over shareholder claims that the bank misled investors in the purchase of Merrill Lynch in 2009.
Murmurs are beginning as observers claim that this may be a largely political move by the Department of Justice with the upcoming election just days away and Americans looking for a candidate who will pursue white collar crime.
The claims against Bank of America follow a suit earlier this month against JPMorgan Chase for systemic fraud in mortgage-backed securities between 2005 and 2007. Both claims were brought by a federal mortgage task force established by the Obama administration charged with investigating frauds involving home loans connected to the 2008 financial crisis.
